Cypress Energy Partners, L.P. Announces First Quarter 2019 Results

Cypress Energy Partners, L.P. (“CELP”) (NYSE:CELP)
today reported:

• Revenues - $90.4 million, up 39% over the prior year;
• Gross margin - $10.0 million, up 23% over the prior year;
• Net income - $1.4 million, up 44% over the prior year;
• Adjusted EBITDA attributable to limited partners - $4.5 million, up
  58% over the prior year;
• Net debt leverage - 3.19x, down 39% from the prior year; and
• Cash distribution of $0.21 per unit, consistent with the last eight
  quarters.

Peter C. Boylan III, CELP’s Chairman and Chief Executive Officer,
stated, “We posted a great first quarter with strong revenue growth
driven by Tulsa Inspection Resources (“TIR”), our Pipeline Inspection
segment. During the fourth quarter of 2018, we began work on the largest
contract in the 15-year history of TIR. During the second quarter of
2019, we are expecting very strong results. Pipeline inspection and
integrity services, our primary businesses, represented 98% of our
revenue and 86% of our gross margin during the first three months of
2019.”

Mr. Boylan continued, “Revenues of our Pipeline Inspection segment grew
from $58.0 million in the first quarter of 2018 to $86.2 million in the
first quarter of 2019, an increase of 49%. This increase was due to
growing demand for our services and increased business development
efforts. Gross margins in this segment increased 53% from $5.5 million
in the first quarter of 2018 to $8.4 million in the first quarter of
2019.

“Revenues of our Pipeline & Process Services segment decreased in the
first quarter of 2019. The decrease was due primarily to adverse
weather, which delayed several large projects scheduled to begin in the
first quarter of 2019. We currently have the largest project backlog in
this segment’s history which we have begun work on in the second quarter
of 2019.

“Revenues of our Water Services segment decreased in the first quarter
of 2019, due to the sale of our Texas facilities in 2018 and lower crude
oil prices which led to a decline in exploration and production activity
in the areas around our facilities.

“As previously disclosed, our sponsor Cypress Energy Holdings, LLC,
completed two acquisitions in 2018. Our sponsor continues to make
progress with both of these acquisitions and intends to offer them to
the Partnership once it has accomplished certain developmental goals.
These acquisitions would move us into several new pipeline services
including water treatment, in-line inspection (“ILI”), equipment rental
(which could be converted into a service business before offering this
business to the Partnership), and offshore pipeline process services. We
remain excited about entering the ILI industry with next-generation
technology capable of helping pipeline owners and operators better
manage the integrity of their assets in both the energy and municipal
water industries.”

Mr. Boylan further stated, “We had an excellent 2018 year with strong
growth and we are off to a great start in 2019. The long-term increasing
demand for pipeline inspection, integrity services, and water solutions
remains strong due to our nation’s aging pipeline infrastructure as well
as growing production, and we believe we are well-positioned to
capitalize on the opportunities that improving market conditions will
create. The future addition of the acquisitions referred to above should
also position us to eventually resume increasing our distributions. Our
ownership interests continue to remain fully aligned with our
unitholders, as our General Partner and insiders collectively own 64% of
our common units and an affiliate of our General Partner owns 100% of
our preferred units.”

First Quarter:

• Revenue of $90.4 million for the three months ended March 31, 2019,
  compared with $64.8 million for the three months ended March 31, 2018,
  an increase of 39%.
• Gross margin of $10.0 million or 11.1% for the three months ended
  March 31, 2019, compared to $8.1 million or 12.5% for the three months
  ended March 31, 2018, an increase of 23%.
• Net income of $1.4 million for the three months ended March 31, 2019,
  compared to a net income of $1.0 million for the three months ended
  March 31, 2018, an increase of 44%.
• Net income attributable to common unitholders of $0.6 million for the
  three months ended March 31, 2019, compared to $0.7 million for the
  three months ended March 31, 2018 (after giving effect to $1.0 million
  of net income attributable to preferred unitholders in the three
  months ended March 31, 2019 related to preferred units that were
  issued in May 2018).
• Adjusted EBITDA of $4.4 million for the three months ended March 31,
  2019, compared to $3.3 million for the three months ended March 31,
  2018, an increase of 37%.
• Adjusted EBITDA attributable to limited partners of $4.5 million for
  the three months ended March 31, 2019, compared to $2.9 million for
  the three months ended March 31, 2018, an increase of 58%.
• Distributable Cash Flow available to common unitholders of $2.3
  million for the three months ended March 31, 2019, compared to $0.9
  million for the three months ended March 31, 2018, an increase of 145%.
• A coverage ratio of 0.90x for the three months ended March 31, 2019
  compared to the March 31, 2018 coverage ratio of 0.37x. Historically,
  our Distributable Cash Flow has been lowest during the first quarter
  of the year, due to the seasonal nature of our business as can be seen
  in prior years.
• A net debt leverage ratio of 3.19x and a credit facility covenant
  leverage ratio of 3.4x, and an interest coverage ratio of 4.8x, on
  March 31, 2019, pursuant to the terms of our credit facilities.

Highlights include:

• We deployed an average of 1,432 inspectors per week for the first
  quarter of 2019, compared to 1,030 in the first quarter of 2018, an
  increase of 39%.
• We disposed of 2.8 million barrels of saltwater during the first
  quarter of 2019 at an average revenue per barrel of $0.77, compared to
  the disposal of 3.1 million barrels at an average revenue per barrel
  of $0.82 in the first quarter of 2018, a decrease in volume of 8%.
• Maintenance capital expenditures for the first quarter of 2019 and
  2018 were $0.1 million, reflecting the minimal maintenance capital
  expenditures necessary for the operations of our businesses.
• Our expansion capital expenditures during the three months ended March
  31, 2019 were $0.3 million. The expansion capital expenditures
  included the purchase of new equipment to support our inspection and
  integrity businesses.

Looking forward:

• We continue to pursue new customers and new projects as they are
  announced and to renew existing contracts. During the second quarter
  of 2019, our Pipeline Inspection segment will likely set a new
  inspector headcount record for us.
• Our Pipeline & Process Services segment began the second quarter of
  2019 with a healthy backlog including projects that were delayed due
  to first quarter weather issues.
• We continue our focus on maintenance, integrity, and nondestructive
  examination services. These business lines yield higher gross margins
  than our standard inspection work.
• During the first quarter of 2019, 98% of total saltwater disposal
  volumes came from produced water, and piped water represented 52% of
  total water volumes. We have significant operating leverage with our
  unused capacity, cost structure and minimal maintenance capital
  expenditure requirements should drilling activity and water volumes
  increase.
• LIBOR interest rates have remained relatively unchanged over the last
  quarter but have risen by about 62 basis points compared to this time
  last year. However, our outstanding borrowings were significantly
  reduced as a result of our preferred equity offering and debt
  refinancing in May 2018.
• Our relationship with PG&E remains strong. We have continued to
  provide services to PG&E after their bankruptcy filing and began
  receiving payment for such services. The bankruptcy court (the
  “Court”) granted a motion authorizing PG&E to pay certain pre-petition
  claims to certain key suppliers, including “operational integrity
  suppliers.” PG&E has advised us that we have been approved to receive
  a payment under the operational integrity supplier order. Details
  regarding the amount of such award and associated release terms have
  not yet been finalized. The Court also authorized PG&E to pay
  pre-petition claims to certain suppliers that have filed or could file
  liens on PG&E’s assets. We filed and perfected liens in the counties
  in which we performed services that are subject to our pre-petition
  receivables. We are working with PG&E to ensure they have all the
  required information to support our liens as they work through their
  payment approval process.

CELP will file its quarterly report on Form 10-Q for the three months
ended March 31, 2019 with the Securities and Exchange Commission later
today. CELP will also post a copy of the Form 10-Q on its website at www.cypressenergy.com.
Unitholders may receive a printed copy of the Quarterly Report on Form
10-Q free of charge by contacting Investor Relations at Cypress Energy
Partners, L.P., 5727 South Lewis Avenue, Suite 300, Tulsa, Oklahoma,
74105 or emailing ir@cypressenergy.com.

CELP will host an Earnings Release Conference Call on Monday, May 13,
2019 at 10:00 am EDT (9:00 am CDT), to discuss its first quarter 2019
financial results. Analysts, investors, and other interested parties may
access the Earnings Release Conference Call by dialing toll-free (US &
Canada): (888) 567-1602, or International Direct: +1 (862) 298-0701.

An archived audio replay of the call will be available in the Investor
section of our website at www.cypressenergy.com
on Tuesday, May 14, 2019 beginning at 10:00 am EDT (9:00 am CDT).

Non-GAAP Measures:

Cypress defines Adjusted EBITDA as net income, plus interest expense,
depreciation, amortization and accretion expenses, income tax expenses,
impairments, non-cash allocated expenses, and equity-based compensation,
less certain other unusual or non-recurring items. Cypress defines
Adjusted EBITDA attributable to limited partners as net income
attributable to limited partners, plus interest expense attributable to
limited partners, depreciation, amortization and accretion attributable
to limited partners, impairments attributable to limited partners,
income tax expense attributable to limited partners, and equity-based
compensation attributable to limited partners, less certain other
unusual or non-recurring items attributable to limited partners. Cypress
defines Distributable Cash Flow as Adjusted EBITDA attributable to
limited partners less cash interest paid, cash income taxes paid,
maintenance capital expenditures, and cash distributions on preferred
equity. These are supplemental, non-GAAP financial measures used by
management and by external users of our financial statements, such as
investors and commercial banks, to assess our operating performance as
compared to those of other companies in the midstream sector, without
regard to financing methods, historical cost basis or capital structure;
the ability of our assets to generate sufficient cash flow to make
distributions to our unitholders; our ability to incur and service debt
and fund capital expenditures; the viability of acquisitions and other
capital expenditure projects; and the returns on investment of various
investment opportunities. The GAAP measures most directly comparable to
Adjusted EBITDA, Adjusted EBITDA attributable to limited partners, and
Distributable Cash Flow are net income and cash flow from operating
activities, respectively. These non-GAAP measures should not be
considered as alternatives to the most directly comparable GAAP
financial measure. Each of these non-GAAP financial measures exclude
some, but not all, items that affect the most directly comparable GAAP
financial measure. Adjusted EBITDA, Adjusted EBITDA attributable to
limited partners and Distributable Cash Flow should not be considered an
alternative to net income, income before income taxes, net income
attributable to limited partners, cash flows from operating activities,
or any other measure of financial performance calculated in accordance
with GAAP as those items are used to measure operating performance,
liquidity, or the ability to service debt obligations. Cypress believes
that the presentation of Adjusted EBITDA, Adjusted EBITDA attributable
to limited partners and Distributable Cash Flow will provide useful
information to investors in assessing our financial condition and
results of operations. Cypress uses Adjusted EBITDA, Adjusted EBITDA
attributable to limited partners and Distributable Cash Flow as a
supplemental financial measure to both manage our business and assess
the cash flows generated by our assets (prior to the establishment of
any retained cash reserves by the general partner) to fund the cash
distributions we expect to pay to unitholders, to evaluate our success
in providing a cash return on investment, and whether or not the
Partnership is generating cash flow at a level that can sustain or
support an increase in its quarterly distribution rates and to determine
the yield of our units, which is a quantitative standard used throughout
the investment community with respect to publicly-traded partnerships,
as the value of a unit is generally determined by a unit’s yield (which
in turn is based on the amount of cash distributions the entity pays to
a unitholder). Because Adjusted EBITDA, Adjusted EBITDA attributable to
limited partners and Distributable Cash Flow may be defined differently
by other companies in our industry, our definitions of Adjusted EBITDA,
Adjusted EBITDA attributable to limited partners and Distributable Cash
Flow may not be comparable to similarly titled measures of other
companies, thereby diminishing their utility. Reconciliations of (i) Net
Income to Adjusted EBITDA and Distributable Cash Flow, (ii) Net Income
attributable to limited partners to Adjusted EBITDA attributable to
limited partners and Distributable Cash Flow and (iii) Net Cash Provided
by (Used In) Operating Activities to Adjusted EBITDA and Distributable
Cash Flow are provided below.

This press release includes “forward-looking statements.” All
statements, other than statements of historical facts included or
incorporated herein, may constitute forward-looking statements. Actual
results could vary significantly from those expressed or implied in such
statements and are subject to a number of risks and uncertainties. While
CELP believes its expectations, as reflected in the forward-looking
statements, are reasonable, CELP can give no assurance that such
expectations will prove to be correct. The forward-looking statements
involve risks and uncertainties that affect operations, financial
performance, and other factors as discussed in filings with the
Securities and Exchange Commission. Other factors that could impact any
forward-looking statements are those risks described in CELP’s Annual
Report filed on Form 10-K and other public filings. You are urged to
carefully review and consider the cautionary statements and other
disclosures made in those filings, specifically those under the heading
“Risk Factors.” CELP undertakes no obligation to publicly update or
revise any forward-looking statements except as required by law.

About Cypress Energy Partners, L.P.

Cypress Energy Partners, L.P. is a master limited partnership that
provides essential midstream services, including pipeline inspection,
integrity, and hydrostatic testing services to various energy companies
and their vendors throughout the U.S. and Canada. Cypress also provides
saltwater disposal and environmental services to upstream energy
companies and their vendors in North Dakota in the Bakken region of the
Williston Basin. In all of these business segments, Cypress works
closely with its customers to help them comply with increasingly complex
and strict environmental and safety rules and regulations and reduce
their operating costs. Cypress is headquartered in Tulsa, Oklahoma.

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